Inflation and Types of Inflation

The most simple and easy definition of inflation is reduction or drop in the value of money. Inflation is a comprehensive topics and it also have different types.

Several economists have described inflation in different ways. For example Coulborn define inflation as “Too much money chasing too few goods.” According to Crowther “Inflation is a state of economy in which the value of money decreases, i.e, prices are rising.” In simple words we can say that inflation is the steady increase in overall prices over long period of time. This increase in the price usually indicates an imbalance between demand and supply of goods at current prices.

What are the rates of inflation

Cost Push Inflation

Cost push inflation is an inflation rate that occurred due to increased costs of products and services. The basic phenomenon is that manufacturing companies buy goods and services at higher prices because they get fewer benefits. So to win the necessary amount of the profits of these companies pass their higher costs to consumers and therefore inflation arises. In general, costs of production increases due to factors such as increased demand for wages, increase the tax burden from the government, high raw material prices, etc.

Demand Pull Inflation

Another type of inflation is a demand pull inflation that occurred due to increased aggregate demand for goods and services. Due to increased aggregate demand, the profit margins of producers also increase so they try to produce more, using all resources. But resources are scarce so the imbalance between supply and demand arises. This means that people demand more than the available supply so prices soar.

Mild Inflation

Mild inflation indicates a slow (say 3% to 4%) in the general price level over a long period of time. This inflation rate shows a positive growth in the economy and therefore must be maintained to the country’s progress. When prices gradually increase the earnings of entrepreneurs and industrialists are also raised and try to produce more. As a result, employ more workers to increase production. This increases the demand for labor which translates into increased employment.

Suppressed Inflation

Suppressed inflation is the inflation rate that the temporary measures taken to prevent inflation but eventually leads to inflation. In such cases the provision of basic necessities such as agricultural products is set by the government by introducing price controls on commodities. It’s called repressed inflation because prices are suppressed through price controls. In the repressed inflation, price control is below the equilibrium price, but over time the inflationary pressures exerted all his force and thus keep track of prices at the balance.

Hidden inflation

Hidden inflation is that in some cases, the government imposes strict controls to curb price inflation. In such situations, employers are forced to sell the products at the prices required. Now because employers can not sell the commodity at higher prices to get the profit, therefore, lower on the quality of products. This means that employers are selling lower quality products at higher prices and inflation that is hidden.

Stagflation

The situation in which unemployment and inflation rates are high is known as stagflation. It is the combination of two words i.e the stagnant economy and inflation in the economy. Basically stagflation of the economy refers to a situation in which investment in the country is growing, but real income is constant or grows more slowly. Such a situation is caused by population growth. With increasing population, demand for goods and services increases along with the money supply leading to inflation.